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Tory MP warns lettings fee ban could increase rents in ‘unintended consequence’

A Tory MP who is also a buy-to-let landlord has voiced concerns over his own party’s plans to introduce a ban on letting agent fees charged to tenants.

Mike Freer, who represents Finchley and Golders Green, said: “Some letting agents do seem to have their bread buttered on both sides, charging both the prospective tenant and the landlord.”

But Freer has also talked to one of the biggest agents in his constituency, Martyn Gerrard.

Writing in Conservative Home, Freer says: “I was surprised to learn that they have long advocated that administration and contract fees charged to tenants by letting agents are indefensible and morally wrong. Their view is that there are only two reasons why agents charge unnecessary administration fees.

“First, an agent struggling for stock will cut their fees to landlords to boost stock, and make up income by charging tenants administration fees to make up the income. Or, second – and perhaps even worse – an agent will charge the landlord a full fee to let the property and also charges tenants a range of fees.

“Either way, Martyn Gerrard estimate that when letting agents’ fees to tenants are banned, the move will wipe between 10% and 20% off the turnover of those agents who have been charging these spurious fees to tenants. Although this may mean the loss of cut-price unregulated agents, which would not be a bad thing, the unintended consequence is that tenants will ultimately be worse off!

“This is because letting agents, according to the consensus, will shift the lost income generated from tenants to the landlord by charging higher fees.

“This, coupled with a shortage of stock (as investors are further deterred from entering the buy-to-let market), will lead to an increase in rents.”

Freer says that a holding deposit should not be seen as a fee that could be banned.

He says: “It is not unreasonable for a prospective tenant to put down a deposit – which goes towards the dilapidation deposit when the tenancy begins – to show commitment, and to assure the landlord that he or she is serious about taking the property.

“A ban on non-refundable holding deposits will mean that tenants could express an interest in multiple properties, giving rise to costs to the landlord and agent… and then simply walk away without any consequence. This is surely not the Government’s intention.

“Similarly, is it unreasonable to ask a prospective tenant to provide evidence of his suitability as a tenant?

“This usually involves an independent company providing a report having carried out credit, employment, previous landlord, immigration and right to rent checks. Again, if the tenant does not have to pay for this, what is to stop him showing interest in multiple properties, with each of these landlords paying for separate referencing checks only to be disappointed?

“Will a landlord be prepared to carry out these checks without any assurance that the tenant is serious, and what will happen if the tenant fails the checks? If the tenant is paying, he will be as certain as he can be that there is nothing in their past that will mean they fail the reference check.

“My concern is that if all the costs are to be borne by the landlord, there will be letting agents who will try to compete for business by cutting their fees. This will inevitably be at the cost of the quality of the service and checks they provide.

“Landlords tempted by the cheap fee will be left dangerously exposed, since the agent may well have had to cut too many corners in order to offer a low fee.”

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